A business model describes how a business intends to turn a new technology or innovation into profit. Although business models cover some of the same ground as a business plan, business owners and entrepreneurs should not mistake one for the other. Business models focus more on bridging the gap between technical and business expertise, but in a general way other businesses can employ. Business plans set goals, benchmarks and strategies for a specific business. Most business models share six chief elements according to business researchers Henry Chesbrough and Richard S. Rosenbloom.

Value Proposition

Value propositions explain, in as few words as possible, what particular benefit users get from a product or service and why you can provide it better than others. For example, a restaurant might make its value proposition that it supports the local business by only using locally sourced meat or vegetables. Customers choose that restaurant because they wish to support local business, even at a higher price.

Market Segment

Market segment is an element that overlaps with business plans; business models must determine a tentative market segment for the product or service. Different market segments can value a new product for very different reasons, meaning market segment selection can radically change the development of the product. Some customers may value cost savings, where others may pay a premium for performance.

Value Chain

The business model must also define a general value chain. Business expert Michael Porter describes the value chain as all the activities from receiving input materials to construction and delivery of the finished product to end users, as well as marketing and customer support.

Profit Creation and Costs

The business needs to develop a clear idea of what method it intends to use to create profit, such as licensing, renting or simply selling the product, as well as the method for collecting money from customers. The model must also cover how profit distribution occurs and a sense of what the market will bear.

Value Network

The business model should account for how a business is situated within an interconnected group of competitors and businesses that provide complementary products or services. By understanding the composition and offerings of other members of the network, the business can enhance value and demand for the core product.

Strategy

Strategy, construed broadly for the purposes of business models, refers to the various ways that a business can establish a competitive advantage in the marketplace. Businesses can take one of two main approaches to creating a competitive advantage: cost or differentiation. The cost strategy entails delivering equivalent products and services for less. Differentiation calls for the business to deliver superior products or services, but usually at the cost of serving a limited market segment.